Wandisco looks very pricey at 588p (WAND)

Yesterday saw Wandisco (LSE:WAND), the
LiveData company, announce its preliminary
results for the year ended 31 December 2018. The headline figures weren’t
that impressive, with year on year weakness shown across the board. The
company’s shares have weakened slightly in response, but even at their current
mid of 588p this still values the business at £262m. Having promised jam
tomorrow for a number of years, Wandisco is going to have to deliver some
pretty spectacular growth in the coming months or the stock could be set for
further falls.

In its business review for the year
Wandisco struck things off on a positive note;

“This has been an important year for WANdisco, as we have begun to unlock the significant potential in cloud computing. We have significantly extended our relationship with Microsoft, gaining co-sell status that allows our WANdisco Fusion platform to be sold as a standard offering with Microsoft’s Cloud Solution, Azure.”

This is all well and good, but the
positivity was not reflected in the results. Revenue for the year was down to
$17m (2017: $19.6m), cash overheads were up to $29.8m (2017: $24.5m) and the
annual operating loss rose significantly to $22.1m (2017: $9.7m).

For a company with such a high market cap
these figures were something of a train wreck, but the market is meant to be
forward looking. What hope might there be for investors that 2019 could see a
turn in the tide as Wandisco fulfils its much-vaunted potential?

The news about the AWS partner status is
certainly positive for the company. If Wandisco is to see a significant
increase in sales over 2019 it is a reasonable bet this partnership will be a
driving force behind that. However, there were a couple of points about the
placing which caught the eye.

First the fundraise was done at a 9.2%
premium to the previous days close and was cornerstoned by a number of
institutional investors, including Merril Lynch International. Second, these
institutions have agreed to a lock in on their stock until 14 February next
year.

Although the lock in doesn’t give total
downside protection it does offer a degree of comfort. Wandisco is still
trading at a c.5% premium to the placing, so if there is a further dip in the
shares investors might get the opportunity to enter on the same terms as
February’s deal.

But what might they be buying into?

In
its paid for “research” note, timed for release in coordination of the
results, Edison presented some forecasts for Wandisco for 2019 and 2020. It
forecast revenue would rocket 87% this year to $31.3m and jump another third to
$40.7m the following year. How reliable these forecasts are is certainly
subject to debate, but given Wandisco’s £262m current market-cap they’re hardly
exciting.

Instead it seems that a punt on Wandisco is
a punt on whether the company might get taken out by a major multinational
looking to increase its footprint in the Cloud. Edison cites IBM’s bid for
RedHat as being an example of the sort of premium potentially on offer for a
business like Wandisco.

It’s certainly not impossible, but this
comparison does look a little rich. Perhaps a competitor will swoop in for
Wandisco and pay a premium to the current share price, but gambling on this
would require courage. If the company’s shares do continue their march lower,
perhaps a decent entry might open up. However before taking such a plunge this
is one business that is going to need to demonstrate it can live up to its own
hype.

Valuethemarkets.com and Dynamic Investor Relations Ltd are not responsible for the content or accuracy of this article. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.

Ben Turney does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

Ben Turney has not been paid to produce this piece by the company or companies mentioned above.

Dynamic Investor Relations Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

The S&P500 has reached new highs again. It’s likely to run on to tackle the 3000 milestone level shortly, where the chart suggests strong headwinds lie. But during the past decade bull run, (assuming we’re still in one) investors have seen this scenario play out positively before - where a big move upward followed with gusto, despite seeming unlikely. Will the third time be so lucky?

Crowd Equity for Placings, IPOs and Live Market Blockbuilds, designed to give provate investors access to placements and Intial Public Offerings (IPOs), predominantly on the London Stock Exchange’s Alternative Investment Market (AIM).

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